The outlook for Britain's two oil majors

Between them, Royal Dutch Shell and its arch-rival BP have garnered some pretty negative headlines over the past few years.

For Shell, there was the 2004 reserves scandal, when it admitted to booking reserves that it didn't actually have. The lawsuits still rumble on.

For BP, it was the Texas City explosion, the Prudhoe Bay oil spill and the accusations of market rigging that dragged the company through the mud and left its reputation in tatters. There too, the company lawyers rarely complain about a shortage of work.

Nevertheless, Britain's two great oil majors have battled hard to put their problems behind them. The past two weeks have given some indication as to their relative success.

Two weeks ago, Royal Dutch Shell reported the biggest annual profit in UK corporate history. A week later, BP posted a disappointing 22 per cent fall in its earnings. On the basis of the headlines alone, it would appear that Shell has done better in laying its ghosts to rest. That would be the indication from the share price too. While BP outperformed the FTSE All Share by 7 per cent last year, Shell did far better, outperforming by 14 per cent.

The detail tells a different story. Shell's fourth quarter profits may have been impressive to the uninitiated, but the figures came in below expectations. After seven quarters of comfortably beating analysts' expectations, that was a clear disappointment.

With oil still hovering just under the $100 a barrel level, oil companies should be laughing all the way to the bank. Refining margins may be wafer thin, with profits from the filling station forecourts almost non-existent, but the upstream operations - getting the stuff out of the ground and selling it on - should be enjoying bumper days. The problem of course is that the simple act of getting it out of the ground is getting far less simple by the day. Even finding new reserves of the stuff is harder, as all the easy-to-locate and drill oil is running out. The cost of drilling the rest is rising fast.

Shell last week refused to release figures showing the rate it is replacing reserves that it has exhausted - something that continues to concern the City - despite increasing its capital expenditure programme from $13bn (£6.6bn) to £27bn over the past four years. Doubts linger over whether this increase will result in improved production levels. Investors will have to wait until the company's strategic update in May to hear the answers to their questions.

BP's results disappointed too, and the company was quick to manage expectations about the tough challenges ahead, but there was some good news for shareholders. After years in which the company has preferred to return money through share buybacks, it yesterday switched tack in favour of increased dividends. An increase in capex from $18bn last year to $22bn this year as it plays catch-up with Shell should also see some of the stock's underperformance reversed.

At these times, talk inevitably turns to the likelihood - or otherwise - of a merger between the two. Certainly, such a deal looks more like being a merger of equals further down the line, but the regulatory and operational barriers to that make it unlikely.

The entire sector has been de-rated in recent months and valuations now stand at close to a 10-year low with both Shell and BP trading on price-earnings ratios that hover around nine times. Many, Questor included, believe that is too low. But for investors who want exposure to just one of the oil majors should look at BP's 5 per cent prospective yield, against Shell's 4.1 per cent, and at BP's greater upside potential. Questor prefers BP.

Chaucer Holdings Price 97.75p Questor says Hold

Considering the sell-off of all things financial, it is no surprise that Chaucer's shares have taken a bath.

Since Questor last tipped the Lloyd's insurer as a buy at 96½p in September, the stock has been as high as 117p. But concerns about financial shares, combined with clear signs that most insurance premiums are falling, means the stock is pretty much flat.

The cost of insurance cover for damage to property or boats caused by a hurricane has dropped significantly due to two benign years of claims. Chaucer said in its trading update on Wednesday that premiums are likely to drop by 7.9 per cent this year, against previous estimates of 6.6 per cent. However, in general its update made pretty good reading. After a few difficult years, it said, UK motor premiums are rising, which should benefit the group.

The Lloyd's insurers have shown relentless takeover activity as cash-rich Bermudans, and recently Japanese, insurers look to diversify. On Thursday it was rival Omega Holding's turn to reveal it was in takeover talks, and Chaucer - a well-run business with good management - will be on any predator's watch list.

With a forecast yield of 5 per cent, and plans to keep lifting that dividend, the shares are worth holding on to.

McBride Price 84.50p Questor says Sell

The last time Questor looked at McBride two years ago, the UK's largest own-brand goods' maker had just disappointed with a less than frothy trading statement. They would have experienced a little déjà vu this week.

Like Unilever, the company suffered "unprecedented" increases in its cost base, but unlike its larger rival, McBride has been less successful in passing that on to its supermarket customers.

Half-year results showed organic revenue and profits slipping back, while margins also fell. The company added to the gloom by saying that the second half would be "challenging" - corporate speak for "awful". There are bright spots, though. Acquisitions are performing well, while the group's European operations took up some of the UK slack.

On the face of it, economic weakness should boost own-label brands, but that is also the area where price pressures are fiercest.

McBride said it was beginning to claw back some of the extra costs, but it looks like being too little too late.

The shares may be cheap, but like some own brands, that's because the quality may be lacking. Sell.

Bglobal Price 37.50p Questor says Buy

As corporate names go, Bglobal is a little naff. It says nothing about the business line but certainly gives some idea about the company's ambitions. Fortunately, the company may just have what it takes to pull it off.

Bglobal is a recently floated supplier of smart meters which services the industrial and commercial markets Companies as diverse as Comet, Ladbrokes and Yorkshire Water pay the group to install meters to measure electricity and relay the information remotely, without the need for visits from the meter men.

The beauty is not just that meter readings are more efficient, but that they provide companies with real-time data on their energy use. So far take-up has been slower than expected, and the shares have not performed well. However the market is growing and while Bglobal has already captured its fair share, an announcement next week could open the floodgates to a much greater opportunity.

The government is expected to recommend that all new and replacement meters be "smart", a move that could lead to significant upgrades in Bglobal forecasts, although the decision is not certain.

Nonetheless, with the company due to move into profit next year, the shares look attractive and are a good bet for risktakers.